Tuesday, November 30, 2010

Mobilizing Private Capital for Public Good

‘Canadians have long relied on governments and community organizations to meet evolving social needs while leaving markets, private capital and the business sector to seek and deliver financial returns. However, this binary system is breaking down as profound societal challenges require us to find new ways to fully mobilize our ingenuity and resources in the search for effective, long term solutions.’

In a ground breaking report released today Mobilizing Private Capital for Public Good, the Canadian Task Force on Social Finance makes seven recommendations that would form a national strategy and enable public, private and non profit sector stakeholders to build an effective impact investment marketplace. Impact investing is defined in the report as ‘the active investment of capital in businesses and funds that generate positive social and/or environmental impacts as well as financial returns (from principal to above market rate) to the investor.’

The most timely from my perspective was Recommendation #3. ‘To channel private capital into effective social and environmental interventions, investors, intermediaries, social enterprises and policy makers should work together to develop new bond and bond-like instruments. This could require regulatory change to allow the issuing of certain new instruments and government incentives to kick start the flow of private capital.’

As a retail advisor, I see the demand for community bonds every day. But product, simple accessible vehicles with minimums far below accredited investor thresholds, is almost non existent. A significant amount of capital from foundations and individual investors is ready to move into this market, and is snapping up the limited offerings that appear. What we need is, as the report says, ‘clear legislation and oversight mechanisms to govern the public sale of Community Bonds by non–profit organizations.’ And once that is in place, we need intermediaries to offer these bonds, and perhaps facilitate a market which provides liquidity and where, just like the regular bond market, prices reflect risk and reward. In that dynamic market various types of bonds with various purposes could be offered, and would thrive, survive or die on their merits.

Along with new types of community investment vehicles, Recommendations #5 and #7, allowing charities and non-profits to undertake revenue generating activities and to be eligible for government sponsored SME programs, will create a demand for debt and equity financing that can be met by innovative social finance markets.

Ilse Treurnicht, the CEO of MaRS Discovery District and Chair of the Task Force on Social Finance, in her introduction to the report says, ‘Our hope is that this report will raise awareness of social finance and stimulate a national discussion about a new partnership model between profit and public good, and the opportunity it represents for Canada’s future.’ Triple bottom line investing? Bring it on!

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